There are some differences in the two models but your credit score is likely to remain high. Also, poor scores will not go away. Each of the credit scoring models uses a different method to calculate your score. But they all share the same goal: to predict the risk to a consumer's credit. This means that you will see the impact on your score.
New credit scoring model
The FICO 10 credit score model will be made available to all three credit rating agencies by the end 2020. It is expected to increase credit scores of 40,000,000 consumers while lowering scores of another 110 million. The trended data is used to predict the likelihood for default. A consumer with a history of good payments and a low amount of debt will generally score higher on FICO than one with a high level.
The new FICO 10 scoring model uses a multi-dimensional approach to credit scoring. It contains trend data regarding revolving balances and minimum payments, as well the amount that has been paid towards any outstanding balances. Combining these data points allows FICO 10 to identify consumers that pay off their accounts on a timely basis. This method reduces the impact from a single event. The result is that a single expense to pay for vacations won't have a major impact on your credit score. But, late payments and high-interest loans will.
Modifications to existing models
A number of new changes have been made to credit scoring systems since the recent release of FICO 10, the credit score model. The new model takes into account new data and algorithms to calculate credit scores. An average increase of 20 points in scores for consumers is expected to affect nearly 40,000,000 people. These changes will reduce the disparities between scores of consumers with different credit histories.
One modification to the scoring model is the inclusion of trended information, which displays credit card or debt balances in the last 24 months. This information rewards responsible card use, while penalizing those who are falling behind on their payments. Also, it penalizes people with multiple debts or a high credit utilization ratio.
Non-traditional credit: Impact
FICO T T is a new scoring algorithm that uses more recent data from accounts than FICO Basic. This data allows for more accurate prediction of a borrower's credit risk than the basic FICO10 Score. A basic FICO score only looks at a snapshot of a consumer's credit report at one point in time. Trended data is especially useful for the credit utilization portion of the score. Credit scores were based on the payment history for the past seven to ten year. The rising balance will affect a borrower’s score.
The new model considers all credit accounts' usage rates and averages out the valleys. This means that a 20 point decrease in one account could have an impact on millions of consumers' credit scores. Renters without a home can use the credit information of their landlord to see if they are eligible for loans.
UltraFICO(tm), Score Changes
UltraFICO is a credit scoring system created by Fair Isaac Corporation. This score is especially useful for consumers with bad credit ratings or limited credit histories. Consumers who have had financial difficulty or limited credit history will be able to see a significant improvement in their scores with the new scoring system.
The new scoring system relies on more data that the FICO credit score. It also incorporates cash flow data from the consumer's bank accounts. Although those data are not necessarily indicative of a consumer’s creditworthiness and creditworthiness in general, UltraFICO aims to increase credit availability for all.